Owens Company Uses the Direct Write-Off Method of Accounting for Uncollectible

question 198

Essay

Owens Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the Valley Company. On August 8, Year 2, after numerous attempts to collect the account, Owens determined that the account of the Valley Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.
b. Assuming that the $6,300 is material, explain how the direct write-off method violates the matching principle in this case.

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Definitions:

Indorse

To sign the back of a financial instrument, such as a check, to make it payable to someone other than the original payee or to endorse a document formally.

Payee

The party in a financial transaction who receives the payment.

Negotiating

Negotiating involves discussing terms and conditions with the goal of reaching an agreement or compromise on matters of business, trade, or interpersonal issues.

Dishonored

A term referring to a financial instrument, such as a check, that has been refused payment by the bank upon presentation.